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A-Z Money: The key to getting income from shares

Y is for yield

If you are drawing an income from your investments, the yield is the most important figure you should look at, writes Ali Hussain.

The yield on an investment shows the income as a proportion of the price and lets you compare the returns on different investments, whatever their value.

If a share costs 100p and is paying a dividend income of 10p, the yield would be 10 per cent.

At present, the average net (after tax) yield on the FTSE 100 index is 3 per cent. This might not sound high, but remember you also have the potential that your capital will grow — as well as the risk of losses.

By contrast, the average net yield on low-risk government bonds, or gilts, is 3.8 per cent.

This is not much more than you would get from shares, even though there is no capital growth potential, which suggests equities are good